Albertsons, Safeway grocery chains to merge

Albertsons will merge with Safeway, the nation's second-largest grocery chain, under the control of the company that owns Albertsons, the companies announced Thursday.

By Audrey Dutton

Albertsons will merge with Safeway, the nation's second-largest grocery chain, under the control of the company that owns Albertsons, the companies announced Thursday.

Safeway CEO Robert Edwards will become the CEO of the new combined chain. Bob Miller, Albertsons' CEO, will become executive chairman.

Albertsons' parent, AB Acquisition LLC, a unit of an investor group led by New York private-equity firm Cerberus Capital Management, will acquire all outstanding shares of Safeway, the companies said in a joint news release after stock markets closed for the day.

The $9 billion deal is expected to close in the fourth quarter of 2014. If the merger fails, the Albertsons parent company will have to pay Safeway $400 million.

"Working together will enable us to create cost savings that translate into price reductions for our customers," Miller said. "Together, we will be able to respond to local needs more quickly and deliver outstanding products at the lowest possible price, more efficiently than ever before."

The deal will create a chain with more than 2,400 stores, 27 distribution centers and 20 manufacturing plants. The combined workforce will exceed 250,000.

Albertsons operates six stores in Southern Oregon, including two in Medford, two in Grants Pass and one each in Ashland and Central Point.

Safeway operates five stores here, including two in Medford, one in Ashland and two in Grants Pass.

The companies said no stores are expected to close as a result of the merger.

Safeway shareholders will receive $40 per share in the deal, slightly above the stock's recent trading price, though Edwards noted that the price is 56 percent higher than Safeway's share price six months ago. Shares closed at $39.47 on Thursday, valuing Safeway at about $9 billion.

With traditional grocers continuing to struggle nationwide, Safeway, based in Pleasanton, Calif., put itself up for sale last month. Analysts and industry watchers said a Safeway sale would reshape the industry, leading to the closure of stores across California and the Southwest and transforming Safeway into a neighborhood grocer that more closely resembles Trader Joe's.

Boise, Idaho-based Albertsons got its start almost 75 years ago in North Boise, where Joe Albertson opened a grocery store he called "Idaho's largest and finest."

By 2006, Albertsons Inc. stretched from coast to coast, with about 2,500 stores and 240,000 employees under several banners, including Albertsons, Acme Markets, Bristol Farms, Jewel-Osco, Shaw's and Star Markets. It was the second-largest grocery chain in the U.S.

That year, Albertsons Inc. did what Safeway did eight years later: gave in to pressures from discount retailers and put itself up for sale. The company was sold in three pieces for $17.4 billion. Stand-alone pharmacies were sold to CVS. Some of the grocery stores, including all the Albertsons supermarkets in Idaho and the non-Albertsons chains, went to Minnesota-based Supervalu, a grocery wholesaler with a retail arm it sought to expand. The Albertsons stores Supervalu didn't want — more than 600 of them, mostly in weak Albertsons Inc. divisions in the South and Southwest — were bought by the same Cerberus consortium buying Safeway. They hired some Albertsons Inc. executives to run it from Boise.

Cerberus pared the store roster to 190, earning millions for itself and its partners by selling failed properties for their real-estate value. When Supervalu finally gave up and put itself up for sale, Cerberus bought the remaining former Albertsons Inc. stores and reunited the two Albertsons chains in Boise. Albertsons quickly hired about 900 new employees in Idaho.

Safeway has been panned for neglected stores and ranked by industry publications as having among the worst customer service in retail.